Long term, the ECB could be forced to consider its target and new asset classes

As discussed in our last preview, in a scenario of prolonged undershooting of the inflation, the ECB will need to be open to the idea of taking a longer time to meet the target or reformulating the target. 

Moreover, in case of any shocks, new asset classes will likely need to be purchased. While we expect a corporate bond purchase programme to be added next year, the available amounts will be limited (<€5bn/month). 

"In a more material slowdown, the ECB may instead need to look at equity as the next large source of assets. Crucially, in a drawn-out battle against lowflation, the ECB will need the support of governments", says Societe Generale. 

Governor Nowotny today said that the ECB is "clearly missing" its target and that in the current environment additional sets of instruments, including structural policies, are necessary.